banking

The Volcker rule

Financial laws and their namesakes
Volcker rule

Volcker rule

The Volcker rule, which would place trading restrictions on financial institutions, is part of the Dodd-Frank Act.

It is named after former Federal Reserve Chairman Paul Volcker.

The Volcker moniker was attached in much the same way as the Buffett Rule got its name. Volcker did not work on the actual legislation, but he was the economist who recommended a new basic financial rule: There should not be conflicts of interest between bankers and their customers.

Essentially, said Volcker, banks that accept deposits should be prohibited from investing money for the financial institution's own gain.

The Dodd-Frank Act codified the Volcker rule, and it's scheduled to take effect this summer, with a two-year compliance grace period for financial institutions. Even then, financial institutions have a two-year grace period to comply with the rule. It would prevent banks from owning, investing or sponsoring hedge funds, private equity funds or proprietary trading operations for their own profit if they are unrelated to serving bank customers.

The goal of the Volcker rule is to prevent the need for future federal bailouts of banks.

"You shouldn't run a financial system on the expectation of government support. We're supposed to be a free enterprise system," Volcker told PBS newsman Bill Moyers in an April 5 interview.


 

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